Swiss Bond Sales Boom as Banks Diversify Amid Dollar Plunge: India Credit

After a 24-year hiatus, Indian companies are poised to raise almost $1 billion of Swiss franc- denominated bonds, about a quarter of total overseas borrowing in 2011, as demand rises among European investors.
State-owned IDBI Bank Ltd. (IDBI) will meet Swiss investors next month in its bid to become the fourth Indian issuer this year to borrow in francs, according to data compiled by Bloomberg. Union Bank of India’s 3.375 percent franc bonds due August 2015 yield 109 basis points more than debt of similar maturities and ratings sold by Jona, Switzerland-based Holcim Ltd., the world’s second-biggest cement maker.
Borrowers in Asia’s third-biggest economy are selling bonds in Swiss francs for the first time since 1987 as the Dollar Index’s 6.5 percent plunge this year spurs a search for alternative funding. European buyers are lured by higher returns and the Indian government’s forecast for economic growth of more than 9 percent this financial year.
“Interest rates in Switzerland are lower and there is strong demand for emerging-market debt,” said Pierre Faddoul, a Singapore-based credit analyst at Aberdeen Asset Management Plc that manages $287 billion. “Companies selling bonds are looking to gain recognition in the Swiss market.”

‘Conducive’ Market
Lenders Export-Import Bank of India, State Bank of India (SBIN) and Union Bank sold 660 million francs ($750 million) of bonds this year, Bloomberg data show. IDBI last issued notes denominated in the Swiss currency when it raised 100 million francs from 5.625 percent, 10-year securities.
The Swiss market is now “conducive” for raising as much as 200 million francs, Melwyn Rego, Mumbai-based executive director at IDBI, said in an interview yesterday. “We are looking at diversifying our funding sources.”
Five-year rupee funding costs for top-rated lenders were last at 9.29 percent, according to FIMMDA, the Fixed Income Money Market and Derivatives Association of India. Swiss financial companies’ bonds yielded 2.46 percent on average yesterday, SWX index prices show.
IDBI appointed BNP Paribas, Credit Suisse Group AG and UBS AG to arrange meetings with debt investors in Switzerland, a person familiar with the matter said April 8. Export-Import Bank of India sold 175 million francs of 3.5 percent bonds this month maturing in April 2016. Borrowing a similar amount in dollars would have cost the lender a 4.1 percent rate, according to data compiled by Bloomberg.

‘New Markets’
“Issuers like Indian banks have to look at new markets and now probably is the time,” S.S. Mundra, Mumbai-based executive director at Union Bank of India (UNBK), said in an interview yesterday. “We will certainly look at Swiss bonds again when the opportunity arises and that may happen sooner rather than later.”
The rupee has strengthened 0.5 percent this year to 44.49 per dollar as overseas funds raised their holdings of the nation’s fixed-income securities by $2.6 billion to $20.3 billion, official data show. The difference in yields between India’s government debt and U.S. Treasuries due in a decade has widened to 473 basis points from a 10-month low of 437 reached April 8.
The extra yield investors demand to hold top-rated Indian corporate bonds for five years instead of government debt has shrunk 10 basis points, or 0.1 percentage point, to 122 from an 18-month high on Feb. 23, Bloomberg data show.

Bond Losses
The yield on Swiss government debt maturing in March 2016 rose six basis points this month to 1.4 percent, according to Credit Suisse. In India, the yield on the most-traded 8.08 percent bond due August 2022 advanced four basis points to 8.28 percent yesterday, the central bank’s trading system shows.
India’s bonds have lost 0.7 percent this month, the worst performance among 10 Asian local-currency debt markets outside Japan, indexes compiled by HSBC Holdings Plc show.
Five-year credit-default swaps on State Bank, which is based in Mumbai and regarded by some investors as a proxy for the sovereign, rose seven basis points this year to 168 basis points, according to CMA in New York. IDBI Bank’s five-year default swaps climbed five basis points to 170.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Haven Reputation
While Swiss investors are looking to diversify their holdings, Switzerland’s reputation as a haven for wealth management attracts Indian companies looking to raise funds, according to Ajay Mahajan, Mumbai-based managing director at the Indian unit of UBS AG.
“The fact the country is rich and has inflows makes a difference in terms of providing the right geography for issuers,” Mahajan said. The dollar’s weakness also has a “role to play in more funds pouring into Swiss francs.”
The Dollar Index, which tracks the currency against six major U.S. trading partners, is headed for its fifth consecutive monthly fall in April as the Federal Reserve keeps interest rates in a record-low range of zero to 0.25 percent, prompting investors to seek higher returns in emerging assets.
The dollar traded at 1.4649 per euro last week, the weakest level since December 2009.
The U.S. economy probably grew at a 1.9 percent annual pace after increasing at a 3.1 percent rate in the previous three months, according to the median estimate of 72 economists surveyed by Bloomberg News before an April 28 Commerce Department report.
“Issuers will begin to shy away from dollar-led funding if its weakening becomes a trend they and look for issuance in other currencies as an option,” said Rajiv Kumar Bakshi, Mumbai-based executive director at Bank of Baroda. “Issuers have comfort in the fact that the spectrum of investors for emerging market issuers is widening.”